Education for profit

Public Interest, Summer, 2003 by David L. Kirp

IN October of 1997, the New Yorker ran an article about the University of Phoenix. The piece was titled "Drive-Thru U," and all the familiar markers of a university-library, bookstore, campus-appeared in quotation marks to denote that they weren't quite the real thing. The campus, the author James Traub marveled, was more like an office building or industrial park: an "outlet," school officials called it. The bookstore carried only textbooks. The library was "wherever there's a computer." And the university itself was a subsidiary of a for-profit company called the Apollo Group. Phoenix proudly billed itself as "the largest private university in the United States," but to most of the magazine's readers, accustomed to imagining higher education as pastoral and ivied, not as a publicly traded company, it was a dangerous interloper.

The University of Phoenix had already been an increasingly profitable operation for a generation when the New Yorker happened upon it. Wall Street knew and loved the company: Between 1994, when it went public, and 1997, when the story appeared, its stock price had risen from two dollars to thirty-five dollars. Since then, the numbers have only gotten better. In 2002, 134,000 students were enrolled at Phoenix campuses across the country and online, and the price of the stock continued to rise, defying the recent bear market.

Meanwhile, other, lesser known for-profit schools have also been expanding rapidly. The American Schools of Professional Psychology, operated by a company called Argosy, award half of all psychology Ph.D.s in the country. Strayer University, founded in 1892 and the oldest of these institutions, has been singled out by Forbes and Business Week as one of the two-hundred best small companies in America. Kaplan, a profitable division of the Washington Post, is best known for its college and graduate school exam-prep courses, but it operates a number of colleges as well. In 1998 it opened Concord Law School, the first entirely online law school. Despite the American Bar Association's refusal to accredit online institutions, Concord now has the largest law school enrollment in the country.

The new for-profits

Proprietary schools have been an American fixture since the seventeenth century, when they taught illiterate adults in New Amsterdam to read, write, and do arithmetic. But until quite recently almost all of these schools were small, independently run operations--derisively called "matchbook schools" since they advertised inside matchbook covers. The best among them taught a useful skill like cosmetology or auto mechanics. The worst have been diploma mills--phantom operations whose degrees are literally not worth the paper on which they are photocopied.

The New Yorker story brought to light a transformation in higher education that has been occurring for a generation. A new breed of for-profit schools has been emerging from the shadows, less marginal and less disdained than its predecessors. Unlike the conventional proprietary schools, these are multi-campus operations that offer online as well as traditional classroom instruction. While some give short courses--for instance, preparing students for the Cisco or Microsoft engineer-certification exam--for the most part they enroll students in degree programs, from the associate degree to the Ph.D. level. These schools are also accredited, which gives them greater legitimacy and grants their students access to federal loan programs.

The reaction to these developments has been cacophonous. The market-minded, who often deride universities as flabby places filled with slackers and ideologues, have enthusiastically welcomed the arrival of the for-profit universities, while traditionalist opponents churn out articles condemning the transformation of the hallowed university into a mere marketplace. Indeed, profit-making schools often carry a taint. When William Durden was named president of Dickinson College in 1999, the fact that he had previously worked in the for-profit sector of higher education--"the dark side," as some professors called it--set off alarms at that tradition-minded school. Similarly, Richard Ruch, a dean at the University of Phoenix, "confess[es] that until a few years ago I thought that all proprietary institutions were the scum of the academic earth."

Despite all the hyperbole about the end of higher education as we know it, traditional universities have little to fear from the newcomers. Economists such as Gordon Winston have pointed out that for-profit schools still represent only a small segment of higher education, enrolling barely 2 percent of the college-going population. And in a head-to-head competition, nonprofit institutions have the immense advantages of endowments and direct public subsidies. There is no reason to believe that top-tier schools whose endowments allow them to subsidize their students heavily will lose students to places like the University of Phoenix, which must make money from tuition in order to remain in business.